Auditors call for $22 million rebate

By Eva Moy

A government agency has recommended that MIT withdraw $22 million
billed to the government for research-related expenses. The Defense
Contract Audit Agency has focused on about a dozen schools, including
Stanford University and the California Institute of Technology.

MIT Vice President for Financial Operations James J. Culliton explained
that most of the disputed amount stems from disagreements and changes in
policy rather than erroneous or improper accounting.

Kenneth D. Campbell, director of the MIT News Office, explained that
every year the DCAA advises the Office of Naval Research concerning
universities' proposed requests for federal funding. Its recommendations
and the universities' responses are given to the federal agencies which
provide the funding. The ONR makes the final funding decisions, Campbell
said.

MIT is challenging the DCAA's recommendations for the fiscal year 1992
budget in the areas of allowable indirect costs, or overhead, and employee
benefits, Culliton said. These disputes will be discussed at a
congressional hearing on Jan. 30, according to The Boston Globe.

Overhead includes building use, equipment depreciation, operations and
maintenance, departmental and general administration and partial
maintenance of libraries for research purposes, according to the MIT News
Office.

Only library and administration costs are disputed, according to
Culliton. Currently, MIT bills the government 49 percent of its library
costs as research-related; the DCAA wants to reduce this amount to about
21.5 percent for FY 92, which would cost MIT approximately $3.4 million.

Also in question is whether off-campus administrative costs, such as
those associated with Lincoln Laboratory, can be included as indirect
costs. These costs come to about $8 million, Culliton said.

Culliton believes the real issue is government changes in the criteria it
uses to determine costs. The government had signed Memoranda of
Understanding with universities, under which it agreed to determine budgets
in certain ways, Culliton said. He asserts that the government is now
trying to rescind a binding, signed agreement and may also try to collect
funds which would have been due in the past had these MOU had not existed.

If the ONR decides to accept DCAA's recommendations, MIT will challenge
their decision at the judicial level of the Armed Forces Board of Appeals,
Culliton said.

RA tuitions also in dispute

MIT also disagrees with the DCAA's recommendations to distribute the
costs of research assistants' tuition to individual projects instead of
grouping them together with the salaries of the entire institute, Campbell
said.

This move would in fact save the Institute about $10 million this fiscal
year, shifting this cost to the government, Culliton said.

The current system allows individual projects to hire more research
assistants, since their tuitions are not paid out of the project's budget.
If RAs' tuitions were added to the cost of specific projects, they could
not afford to hire as many RAs, Campbell said. The change would leave MIT
less competitive with other research universities, Campbell said.

"The result of the indirect method has been a significant increase in a
key measure of MIT's productivity -- the number of doctoral students
graduating," Culliton said in an article released by the News Office.

Culliton says $11 million

can be reconciled

About half of the $22 million should not be in question, Culliton said.
MIT received about $4 million that it did not spend and thus will not be
billed to the government. Another $6 million, set aside for post-retirement
medical costs, will be removed from the $22 million as soon as a Voluntary
Employees' Beneficiary Association is set up, probably by the end of the
year, Culliton said. Another $1.1 million includes accounting errors made
during the past five years, in addition to errors in projections for FY 91
and FY 92, Culliton said. MIT has already paid the government $778,000 for
its overcharges over the past five years.

"To put it another way, our accounting for indirect costs for those five
years is around 99 and 84/100 percent accurate. That does not excuse the
errors that were made; it simply puts them in some perspective," Culliton
said in the News Office release.